Checking in on Abenomics

When Shinzo Abe was elected as Japan’s Prime Minister in December 2012, he launched a bold plan of economic reforms that became known as “Abenomics”. These reforms included increased government spending, more purchases of government bonds by the country’s central bank, deregulation, and new international trade agreements. The aim was to jolt the country out of two decades of stagnation that had been characterized by deflation and mediocre economic growth.

Almost a year and a half into the implementation of this reform agenda, Abenomics appears to have made some progress. The value of the Yen, the country’s currency, has fallen by more than 20% since November 2012, helping Japanese exporters become more internationally competitive. The stock market has soared by 60% against the US dollar over the same time period (although for US investors some of that gain has been offset by the decline in the value of the Yen). Japanese wages rose in February for the first time in almost 2 years, suggesting that the quest to end deflation may finally be bearing fruit.

That doesn’t mean that Abenomics has been unequivocally successful. Many of Abe’s proposed regulatory reforms, such as breaking up the country’s electricity monopolies and loosening rules about how companies hire and fire workers, have struggled to gain support. Some critics, such as economist Edward Hugh, argue that Abe’s attempts to stimulate the economy will ultimately fail.

The mixed outlook is reflected in the gyrations of Japan’s stock market: the overall rise since Abe’s election masks a few large drops, including a decline of more than 10% so far this year. Despite some early signs of success, the jury is still out on whether Abenomics will resuscitate Japan’s economy.